How EDI Reduces Costs and Improves Efficiency in the Supply Chain Management Industry

There are myriad benefits to using EDI in supply chain management as information is exchanged faster without the need of using paper-based or manual processes. The application of EDI solutions in the supply chain enables the system-to-system exchange of enterprise documents between trading partners, standardizes transactions with suppliers, and reduces the risk of miscommunication and human error. 

Many companies have been making the transition to digitizing their operations with EDI, saving costs and improving productivity.

EDI is now critical to supply chain management, especially in industries that have complex supply chains or regulatory requirements. Read on to learn how EDI is transforming the supply chain management industry and enabling the instant exchange of vital data for real-time processing.

What is EDI?

EDI stands for Electronic Data Interchange. It is a method of exchanging business documents electronically between trading partners in a standardized format. Documents that are exchanged typically include requisitions, purchase orders, invoices, and delivery and shipping notices.

EDI enables companies to automate and streamline their business processes by eliminating the need for manual data entry and paper-based transactions. Data is exchanged directly between computers in each company in the supply chain network instead, which reduces errors and processing time and increases efficiency and accuracy.

How Does EDI Work?

EDI is a multi-step process between the computer systems of trading partners.

1. The process starts with a company creating an electronic document, such as a purchase order, by using its own internal software or that of an EDI service provider.
2. The software formats the document according to a specific EDI standard like ANSI X12 or UN/EDIFACT.
3. The company transmits the document through an online connection to the receiver’s computer system. The online connection is usually a secure communication channel, such as AS2 or SFTP.
4. When the document is received, the receiver’s computer system uses software to translate the document from the EDI format into a format that can be read by the company’s internal systems.
5. Once the receiving company has processed the document, it may respond with its own electronic documents, such as an invoice or a shipping notice. The process is then repeated in reverse, with the sender receiving and processing the recipient’s document.

Therefore, EDI enables shipping and transport companies to exchange business documents quickly, accurately, and securely. Manual processing and related costs are either reduced or completely eliminated. EDI can be integrated with a company’s existing systems and processes, allowing for efficient and streamlined communication between trading partners. For a supply chain business, the partners are usually vendors, suppliers, and B2B customers.

Benefits of EDI in Supply Chain Management

1. Reduced Costs
   EDI automates supply chain documentation and delivery. There is no need for printing, reproducing, filing, or sending large volumes of documents, hence, saving significantly on paper and postage. Automation also reduces the need to hire extra staff for process controls.
2. Reduced Process Times
   EDI significantly speeds up transactions between supply chain partners. An EDI solution also enables companies to handle a high volume of transactions in a given period. According to one report, order-to-cash cycles can be reduced by as much as 50%, thus, minimizing labor costs and maximizing customer satisfaction. For warehouses, EDI frameworks help enable quick turnaround times by rapidly processing product information and allowing businesses to track real-time movement of goods and materials across the supply chain network.
3. Increased Efficiency and Productivity
   The synergy between quick business processes and low costs improves the overall efficiency of a supply chain business. This, in turn, improves employee performance and productivity. Employees will be able to quickly track processes without having to spend too much time tracking down errors. In a nutshell, everyone can do more in less time, creating more room for value-added activities.
4. Better Inventory Management
   Personnel involved in inventory can automatically update their inventory records through EDI systems connected to internal computers. EDI also helps to alert external vendors and suppliers about your current inventory status, allowing each network partner to take preemptive action for updating product stock. Inventory records can also be accurately managed, minimizing the chances of errors and waste.
5. Mitigating Risk
   An important part of the supply chain business is regulatory compliance and risk management. If you work in a country or with a customer that is required to follow specific laws, EDI systems can help you meet the necessary requirements. EDI systems could also help companies avoid large fines or lose customers.
6. Enhanced Customer Service
   It might not be obvious at the start, but EDI can improve internal and external communication because of the transparency it provides to employees. By providing accurate and timely information to customers, EDI users can dramatically improve customer satisfaction. The time savings also open up opportunities to focus on value-added activities that add to the customer experience.
7. Integration with International Ecosystems
   If you want to trade with multinational companies, you will have to modify your document structures to match international standards. This is true for customers buying your products and vendors that supply industry-wide information. Here’s where EDI comes in handy. EDI standardizes document formats so that you can readily exchange information with other businesses, giving you access to new markets.

EDI Integration with ERP Systems

Many companies in the supply chain management industry use sophisticated Enterprise Resource Planning (ERP) software to manage their business, like SAP and Oracle. ERPs typically have multiple modules designed to manage departmental functions like finance, human resource, and logistics. ERPs are widely used when product information is centralized and businesses need to scale up to accommodate high transaction volumes.

Therefore, to maximize the benefits of EDI in supply chain management, it’s important to integrate it with your existing ERP systems. Integrating EDI with ERP systems streamlines operations at scale, and allows transacting parties to quickly analyze information from a central database. Over the years, EDI integration for ERP tools has become the industry standard.

ERP systems also have standardized processes and documentation for supply chain management, which means that companies that use EDI will be better positioned to enable their front-end systems for trading with other ERP-enabled businesses. The standardization also double-dips into industry compliance, allowing an EDI user to hit two birds with one stone.

Managed EDI Services for Supply Chain Management

Supply chain management requires a great deal of flexibility due to the scale of operations and the diversity of customers involved. Supply chain companies also have to deal with large amounts of data, adding to operational complexity.

Furthermore, new regulations or changes in documentation standards mean that companies need to keep their EDI systems constantly updated. These challenges have created a demand for managed EDI services in the supply chain industry. 

Businesses can hire a professional service provider to oversee their EDI requirements and practices. These services help supply chain management companies to tailor their operations to meet evolving customer needs and requirements. They also give access to EDI expertise for training and troubleshooting. You can read more about the value of managed EDI services here.

The Future of EDI in Supply Chain Management

Small Businesses are Seeing Rapid Growth with EDI

Ever since the COVID-19 pandemic hit, many companies have been going digital to offset the negative effects of physical lockdowns. As you can expect, EDI is an important aspect of digital transformation, and many small businesses are immensely benefitting from it. The use of EDI in retail sales has soared in recent years, meaning there is plenty of room for small supply chain businesses to thrive in the current business environment.

SaaS is becoming an Integral Part of EDI

While many larger companies are shifting to process documentation in-house, smaller businesses are finding SaaS solutions for their EDI needs quite cost-effective. Companies like Celigo and Zapier are building user-friendly platforms to help non-experts utilize EDI for their supply chains. These tools come with preconfigured options for users and a variety of dashboard analytics that give them full visibility into their supply chain.

Peppol is Expected to Become Common

Peppol is an EDI protocol developed to standardize e-procurement within the EU. It provides a common language for government organizations and suppliers to streamline the procure-to-pay process, reducing complexity and improving efficiency. Peppol’s implementation eliminates the issue of each trading partner having unique requirements and standards, thus, simplifying communication and onboarding.

While initially mandated for government use in the EU, Peppol has expanded to other countries such as Malaysia, Australia, Singapore, Japan, and New Zealand. As more countries digitize their processes using EDI solutions, Peppol adoption is expected to increase.

EDI and API

Although EDI and APIs (Application Programming Interface) are viewed as competing services, they will increasingly be used together to enhance B2B integrations and improve trading-partner collaboration. EDI will enable downstream business processes, while APIs will add functionality and deepen context, optimizing B2B integrations and making business processes more efficient and effective.

Secure EDI with Blockchain Technology

Blockchain technology can provide a tamper-proof ledger system that enables secure and transparent data sharing between organizations. By using secure encryption techniques used in blockchains in EDI, data integrity and privacy can be protected from unauthorized access and cyber threats. Smart contracts in blockchains can also automate EDI processes, thereby, reducing costs and increasing efficiency. There are many emerging solutions like UNISOT for blockchain-based EDI.

EDI: A Time-Tested Solution for Streamlining Supply Chain Operations

Even though EDI has been around for several decades, the fact that many businesses are still using it means that it is here to stay. The potential for further growth and development of EDI in supply chain management is clearly evident, and the market is projected to reach $49.21 billion by 2027. Businesses of all sizes can leverage the benefits of EDI to maximize efficiency and productivity with new technologies, a growing industry of service providers, and the cumulative push for digital transformation.

Headquartered in Richmond, Virginia, EDI Partners services customers in all industry verticals across the United States to help them maximize the value of EDI. For nearly 30 years, we have helped organizations grow through seamless, end-to-end management of their EDI operations.